Price Discrimination

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teflor the ranger
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Price Discrimination

Postby teflor the ranger » Sun Mar 28, 2010 1:41 am

Price discrimination is when a product is sold for two different prices depending on where it is sold. Say Sears sells appliance X for 10% more on the rich side of town than on the poor side. Sears is then practicing geographical price discrimination. This is a common and legal practice used by many organizations that operate in more than one area. It is not illegal because, technically, a customer can drive across town and get the cheaper price, or simply opt not to purchase the product.

This however, can get messy quite quickly, particularly when moving across national borders. Say a music CD sells in the United States for $23.99. There's no way they could sell many copies outside of the richer parts of Europe. So this same music CD gets sold at discounted prices in other world markets where people don't have anywhere near as much disposable income.

In the meanwhile, an intrepid American notices that the music CD he rejected at a price of $23.99 is available in China at a store price of only $4.82. Having a grandmother that lives in China, he asks her to buy and ship the CD to him at a greatly reduced price. Unfortunately, he is not the only American to have noticed. A import-export business has also noticed the price difference and wants to import the CD from China to sell in the United States at a reduced price.

Nations avoid situations such as this by applying taxes to imported goods. The grandson will have to pay an import tax based on the value of the product in the United States, and will ultimately have to pay $4.82 for the CD, $2.10 for the shipping, and likely $5.02 in tax for a total of $11.94. This is a fantastic savings for the young man. However, the import-exporter finds that he is not able to accumulate much stock because many suppliers overseas have agreed with the producer that they will not sell to an exporter (thus preserving the price discrimination for the producer) and what stock they do get they cannot seem to find a retailer for (who sees it in their best interest to support the producer). They make some money off of selling randomly, until they are accused of piracy and shut down.

Why do Americans have to pay $23.99 when the Chinese only have to fork over $4.82 for the exact same product?

The answer to the first question is simple. It is because they CAN get that money out of us. If the producer could get $23.99 out of the Chinese, they would, however, their sales suffer too much if they overprice their CD in China. This, however, leads us to another question:

Why does our government force us to live with price discrimination?

This is a great question. Ostensibly, the government wants you to buy goods directly from American retailers while in America so they can tax the living hell out of you from the state on up. They also are trying to support American businesses like retailers by making sure you buy your goods from them instead of mailing your money overseas.

So, the government forces us to live with price discrimination so it can collect taxes and feed our corporations?

Yes.

Does it hope that in doing so, the government and the corporations will feed us?

Maybe. It does seem to have that effect.

What the hell? Why the fuck would I want to participate in this bullshit scheme?

Honestly, you don't have to. All you have to do is simply stop buying anything.
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Re: Price Discrimination

Postby amena wolfsnarl » Sun Mar 28, 2010 8:42 pm

I know when the canadian and US dollar were close to the same the Snowmobile dealerships (I cant remeber the brand) along the united states border were ordered by corporate office to not sell to the canadian people, coming down to take advantage of roughly the same dollar value, cause of the drastic difference in price between canada and the US on these products, even after the sales tax that the canada government applied at the border. This pissed a lot of people off, the geographical distance was less than 100 miles and the savings were amazing compared to the prices in canada, but the corporate office didnt want to lose the profit they made off the canadian market.
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Re: Price Discrimination

Postby avak » Mon Mar 29, 2010 3:25 pm

I about shit myself when I realized how deep this thread was. Thanks for the information.

Did you know that you can charge more...sometimes orders of magnitude...for a gd piece of paper just because it was signed by a celebrity? Get the eff out of town, you say? I say, no! No fn shit.
teflor the ranger
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Re: Price Discrimination

Postby teflor the ranger » Mon Mar 29, 2010 4:36 pm

Well, the issues surrounding price discrimination is that it's about being cornered into paying different prices than other people for the exact same product. Particularly across borders and realms of political control.

Furthermore, the issues are behind who else helps price discrimination. Governments are complicit in making people pay higher prices.
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Re: Price Discrimination

Postby avak » Mon Mar 29, 2010 6:45 pm

My mind is currently blown...

The only complicity the government has is in allowing a free and unfettered marketplace.

You honestly expect the US gov't to dictate what the price of a good should be based on global comparisons?
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Re: Price Discrimination

Postby teflor the ranger » Mon Mar 29, 2010 6:50 pm

Not only that, but to ensure that you're paying a higher price than others.
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Re: Price Discrimination

Postby kiryan » Mon Mar 29, 2010 8:14 pm

Umm... government is complicit by manipulating exchange rates and import/export taxes as well as outright banning the importation of some products...

In the interests of globalism, you should be able to buy Microsoft Windows in China for $20 a license (authentic product) instead of the $100-200 you pay here in the USA or buy a prescription in Canada or Thailand for half of your copay in the USA. Government manipulates this to make you buy local (ostensibly to preserve jobs). Why should we pay more for a CD here in the USA if its sold for significantly less in another country?
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Re: Price Discrimination

Postby Todrael » Mon Mar 29, 2010 8:27 pm

And who manipulated government to manipulate the market?
Tanras
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Re: Price Discrimination

Postby Tanras » Mon Mar 29, 2010 8:43 pm

Companies should be able to price goods however they see fit. The supreme example of price discrimination that we all engage in every day are airline tickets.

Late purchasers and business travelers are heavily discriminated against in terms of pricing. Without the ability to sell the same seat for 100 different prices, a couple of things would happen.

1. A lot of airlines would go out of business
2. The cheapest available ticket would go way up in price

Free market is free market. If someone is willing to pay $300 for a round trip ticket or $200 for Microsoft Office, let them. Price discrimination ultimately benefits price conscious consumers by matching willingness to pay more closely with the product that is delivered.

Amazon.com got some bad press many years ago for price descriminating based on your previous site behavior. Basically they were selling widget A for $20 to some people and showing $25 to other people. They had to stop due to a PR fiasco, but the reason why it works so well with airline tickets is that there is zero transparency with ticket sales as opposed to consumer goods.
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Re: Price Discrimination

Postby Ashiwi » Tue Mar 30, 2010 3:47 am

Did nobody read the news recently on the price increases planned for movies at the theater? The logic given to support the increases was as blatantly honest as it gets.

"The exhibitors are trying to push the needle on ticket prices and see where it ends up. So far charging a $3 or $4 premium has had no effect on consumers whatsoever, so I'm in favor of this experiment to raise prices even more. There may be additional revenue to earn here." Dan Fellman, president of domestic distribution for Warner Bros.
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Re: Price Discrimination

Postby Ragorn » Tue Mar 30, 2010 5:25 pm

So wait, I'm confused.

When a company charges different prices in different locations, is it "price discrimination" which should be illegal? Or is it "free market" into which the government should not infringe?
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Re: Price Discrimination

Postby Thilindel » Tue Mar 30, 2010 6:43 pm

You see this every day when the fuel tanker goes from gas station one, to gas station 2. When the fuel came off the tanker into 1's station, it was 2.65/gallon. Yet, oddly enough, when it was at gas station 2's reservoir, it goes to 2.69/gallon. Actually got bored one day when I was younger, so followed this thing around. After four stops, it hit a Marathon, Shell, Thortons, and finally a BP. Yet, in the local news, they've claimed to have different suppliers before.
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Re: Price Discrimination

Postby avak » Tue Mar 30, 2010 7:12 pm

So yeah...take home message here for those paying attention:

Hypocrites will say "cradle to the grave" and 'big brother" and 'socialism" when it applies to others getting something. They will cry 'unfair' when they want the entitlement to swing their way.
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Re: Price Discrimination

Postby Corth » Tue Mar 30, 2010 7:21 pm

When I sell you my used car I am trying to get you to pay as much as possible. We all basically understand that on the individual level. Why is it so shocking when businesses do the same thing?
teflor the ranger
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Re: Price Discrimination

Postby teflor the ranger » Tue Mar 30, 2010 8:34 pm

avak wrote:So yeah...take home message here for those paying attention:

Hypocrites will say "cradle to the grave" and 'big brother" and 'socialism" when it applies to others getting something. They will cry 'unfair' when they want the entitlement to swing their way.

You are so full of crap, I haven't made a value judgement either way and no one has cried unfair. We're just discussing the nature of price discrimination, liberal Glenn Beck :P
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Re: Price Discrimination

Postby Tanras » Tue Mar 30, 2010 8:48 pm

Lot's of you do not understand price discrimination. Charging different amounts at different locations is often not price discrimination. That is often due to higher rent or higher cost of delivery of raw goods (gas). It might even be due to different tax stuctures.

Price discrimination would be charging someone who pull into the gas station in a Lexus more than a person who drives up in 15 year old Mazda because there is a different willigness to pay.

Discrimination is selling the exact same product for different amounts to different people. . .location of a product makes it a different product with a different profit profile.

Raising prices at the theatre is also not discrimination. . .that is just raising prices. Discrimination would be charging people different prices based on something like the clothes they are wearing at the time. Lady A wearing a Rolex might be willing to pay $18 per ticket, but kid B might only have $10. Without discrimination, they either charge $10 and make $20 total selling two seats or they charge $18 and sell one ticket for $18.

If the theatre was able to discriminate, they could sell two tickets for a total of $28.

rambling. . .but hopefully you get the idea. Raising prices or charging different amounts in different locations does not constitute price discrimination.
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Re: Price Discrimination

Postby Tanras » Tue Mar 30, 2010 8:50 pm

Oh. . .and price discrimination is not illigal unless you do it based on statuses afforded special status by the Civil Rights Act (gender, race, etc). It is seriously an integral part of the airline industry today.
Last edited by Tanras on Tue Mar 30, 2010 8:51 pm, edited 1 time in total.
teflor the ranger
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Re: Price Discrimination

Postby teflor the ranger » Tue Mar 30, 2010 8:51 pm

Tanras wrote:Lot's of you do not understand price discrimination. Charging different amounts at different locations is often not price discrimination. That is often due to higher rent or higher cost of delivery of raw goods (gas). It might even be due to different tax stuctures.


http://en.wikipedia.org/wiki/Price_discrimination

In general, the practice of charging different customers different prices is called price discrimination.[1]

[1] Krugman, Paul R.; Maurice Obstfeld (2003). "Chapter 6: Economies of Scale, Imperfect Competition and International Trade". International Economics - Theory and Policy (6th ed.). p. 142.
teflor the ranger
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Re: Price Discrimination

Postby teflor the ranger » Tue Mar 30, 2010 8:53 pm

As far as selling at different prices based on location, I think is classified by many as third degree price discrimination, as a lesser form.
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Re: Price Discrimination

Postby teflor the ranger » Tue Mar 30, 2010 9:01 pm

Ragorn wrote:So wait, I'm confused.

When a company charges different prices in different locations, is it "price discrimination" which should be illegal? Or is it "free market" into which the government should not infringe?


This is where I'm at, I was wondering if you all had much in the ways of opinions. In all, I am for limited government, but not impotent government. I'm also for the constitution, and interstate commerce regulation is a part of that deal.
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Re: Price Discrimination

Postby Tanras » Tue Mar 30, 2010 9:06 pm

for the same product. Geography changes the product. . .at least it does in my mind :). More specifically, geography sometimes changes the product. Pure price discrimination is about selling an identical product with an identical cost profile for different amounts based on demographic or behavioral differences in the consumer.
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Re: Price Discrimination

Postby avak » Tue Mar 30, 2010 9:16 pm

teflor the ranger wrote:You are so full of crap, I haven't made a value judgement either way and no one has cried unfair.

Hmmm...first of all...unless you -were- making a value judgement my claims weren't directed at you. And secondly, you did:

"So, the government forces us to live with price discrimination so it can collect taxes and feed our corporations?

Yes."

"What the hell? Why the fuck would I want to participate in this bullshit scheme?

Honestly, you don't have to. All you have to do is simply stop buying anything."

And as for price discrimination in the OP example...as Tanras accurately points out, differences in geography eliminate one of the criteria: identical products.
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Re: Price Discrimination

Postby Tanras » Tue Mar 30, 2010 9:54 pm

The other point is that price discrimination benefits the price conscious consumer because you will get a lower price than you could get in a non-price discriminated world.

Using the movie ticket example above, because theatres are forced (due to transparent pricing) to not discriminate, they have to choose a single ticket price that might be $14 to maximize profits. This means that price conscious consumers will not go see movies that they would otherwise enjoy seeing at a lower price point.

Theatres try to get around this a little bit be using price discrimination in the form of senior and student discounts. If you liked getting student discounts, then you were enjoying the consumer benefits of price discrimination. We could force them to sell at a single price and you would hurt these "evil" corporations in the process. You would also be hurting the most price conscious consumers and helping the wealthiest.

Your call.
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Re: Price Discrimination

Postby Tanras » Tue Mar 30, 2010 9:57 pm

The other form of "evil" price discrimination you enjoy every day are coupons. Do you think the wealthy clip coupons? No. . .that is the point. It allows retailers to give lower prices to those who are not willing to pay "book" value. In this case, it is based on behavior instead of demographics.

Do you want to kill coupons?
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Re: Price Discrimination

Postby teflor the ranger » Wed Mar 31, 2010 4:15 am

Tanras wrote:The other form of "evil" price discrimination you enjoy every day are coupons. Do you think the wealthy clip coupons? No. . .that is the point. It allows retailers to give lower prices to those who are not willing to pay "book" value. In this case, it is based on behavior instead of demographics.

Do you want to kill coupons?

Lol. I think I hear the mouths of three coupon clippers here drop wide open.
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Re: Price Discrimination

Postby teflor the ranger » Wed Mar 31, 2010 4:17 am

avak wrote:And secondly, you did.

No. I often do question and answer sessions in which I answer questions that others might ask.

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